There are various costs which businesses could do without and many business owners final to focus on anything other than revenue and growth. The fact is that often the stumbling block when it comes to profitability and growth lays in the unnecessary spending that many businesses do. It is a known fact that over half of all new businesses will fail within their first 3 years and this is almost always as a result of poor financial management.
One such cost that can hit businesses very hard are chargebacks, these cost businesses in a wide variety of ways and today we are going to look into what they are, how they can negatively affect businesses and what you can do as a business owner to reduce the chances of a chargeback or recover lost revenue from chargebacks.
What Are Chargebacks?
Chargebacks were put in place by merchant providers to help customers avoid unauthorized sales using their credit cards, the process has helped many who have had their cards lost and stolen. Unfortunately there are some unscrupulous people in the World who have decided to take advantage of this and will buy products and then request a chargeback from the merchant. To make things easier on themselves, merchant will often grant these refunds at speed and then charge the business to recover the payment.
How Do Chargebacks Damage?
Financially speaking, chargebacks can do a great deal of damage to businesses and those most at risk are the companies who are not selling physical goods or companies who are selling low priced goods. The estimates from many is that chargebacks costs businesses over $300 for every $100 of chargebacks and this is because of a number of various costs which can be factored in to the process of a chargeback. Here are just some of the ways in which your business will be negatively affected financially by a chargeback:
– Training of staff to deal with the chargeback process
– Cost of manufacturing of goods
– Cost of handling goods
– Cost of delivery and receipt of product depending on return terms.
– Loss of revenue and profit from the sold product
– Loss of potential re-sale on the product
– Time spent negotiating with banks or merchants when contesting chargeback
– Packaging materials
– Possible suspension of activities following several chargebacks
As you can see, there are many factors which have to be taken into a account when we consider placing a cost on something like a chargeback and repeated chargebacks can severely damage your business, your profits and your credentials as a trader. Far too many businesses write off chargebacks as nothing more than the ‘cost of doing business’ but this simply is not the case and if you want to ensure that money from your company is not simply walking out the door then you will need to be on the front foot when it comes to chargebacks.
Prevention and Recovery
There are some steps which you can take to avoid chargebacks in the future and whilst you can never eliminate the possibility entirely, good practice will make it more difficult for customers to do so. If you are selling high value goods then you must operate under the same name as your business, if customers see their payment going to a subsidiary then they will see this as an opportunity. In terms of deliveries you should aim to send as many items as possible as recorded delivery which will need a signature and you should ensure that your receipt and logging system is very detailed and of a high standard. Finally, it is worth contesting every chargeback which your company receiives, many of which you can resolve simply, the key is not to ignore it.